How to Stop Living Paycheck to Paycheck: Why 80% of Americans are BROKE

How to Stop Living Paycheck to Paycheck

So many people nowadays live paycheck to paycheck. Inflation and growing living costs appear to aggravate the issue. More and more families are being locked in this cycle, constantly working yet unable to make ends meet. In this article, we’ll talk about why people, specifically Americans, live paycheck to paycheck. We will discuss why the majority of Americans are broke and how you can prevent it.

Debts are Rising

One of the reasons that must also be taken into consideration is the fact that debts are also rising. From student loans to credit card debts, households nowadays have debts that further add to their burden. A six-figure income doesn’t always translate to financial security as household debt soars and living expenses rise in various regions of the nation.

2020 financial crisis

Naturally, the 2020 financial crisis has only made matters worse. Families of all kinds are currently concerned about making ends meet. According to research, middle-class Americans frequently express optimism about their financial situation. Compared to individuals who aren’t in the middle class, they are less likely to express concerns about their capacity to strike the correct balance between spending now and saving for the future.

Whether their expectations and views are realistic given the circumstances at hand is the question. You might think that households with greater incomes would have more savings since they have access to more financial resources. But according to previous studies and the analysis by Willis Towers Watson, it isn’t always the case.

These startling numbers show how few of us have the means to get by, even if livable salaries vary greatly depending on where you live. Even individuals who earn $100,000 annually still struggle to make ends meet. Additionally, 59% of those who earn so much money are in debt. And to make matters worse, 56% of those 59% claim to be significantly in debt.

In its 2018 survey on household economics and decision-making, the Federal Reserve found that 40% of Americans would even struggle to come up with just $400 to cover an unforeseen bill!

What is really causing the cash crunch?

Identifying the exact causes of high earners’ financial problems is the first step in understanding why so many of them struggle. Debt may be one of those factors. The total household debt in the US rose to an all-time high of $14.15 trillion in the fourth quarter of 2019, according to data from the Federal Reserve Bank of New York.

Why 80% of Americans are BROKE

Even if student loans account for a growing fraction of what Americans owe, mortgage debt still accounts for the vast bulk. The Center for Retirement Research at Boston College showed that the main cause of why households are struggling to come up with $400 for an unexpected cost is debt. This can be credit card balances, mortgages, and school loans.

However, this does not mean that only high-earners are the only ones racking up debt due to irresponsible spending. For some Americans making six figures or more, the high cost of living may also be the cause of their financial difficulties.

For example, since 2012, property values have increased by about a third. The median sales price of a home increased from $251,700 at the end of 2012 to $324,500 at the end of 2019. In some areas, the tremendous demand for property has resulted in the sky-high purchase and rental prices that consume an even greater share of top earners’ incomes.

According to a survey by Magnify Money, San Jose, California is the worst city to live in if you earn only $100,000 a year. After paying for housing and other monthly expenses, residents have a 454 dollar shortfall per month. Student debts, debt repayment, health care, transportation, and child care are a few of these costs.

As kids become older and start getting ready for college, high-income families are increasingly burdened financially since financial aid for children from affluent households is scarce. A public four-year university’s average out-of-state tuition and room and board costs for the 2019–2020 academic year were already $38,330. Obviously, this can increase the burden for those making six figures.

Why 80% of Americans are BROKE

Investing

Let’s now talk about investing. Some people feel compelled to publicly declare that they would never invest because they are so upset when asked about where they would like to put their money. Of course, there is no assurance of a 10% return on investment. After all, investment returns are frequently uncertain. You might even lose money occasionally.

However, some years will be better than others. Would a 7% yearly return on average be any worse than a 10% annual return over the long term? And how about a yearly return of 5%? That seems preferable to being broke, doesn’t it? Let’s put these figures into context.

Imagine if, after years of investing, you don’t wind up with a million dollars because your choices weren’t the best. However, you do wind up with $500,000. Wouldn’t that be preferable to the $0 you currently have? 30 years may be said to be a very long period to wait. So, if you don’t want to wait 30 years, put more money into investments.

Build a business in your spare time to maximize your earning potential. And to complete more work, you might want to consider waking up an hour earlier. Always keep in mind that investing won’t make you rich quickly. The goal of investing is to put your money to work for you so that it can produce additional revenue.

You’ll need to work extremely hard if you want to start a business and make more money that way. That’s 100% doable if you want to accelerate your path to achievement. However, in order to invest more money and increase your income, you will have to make even more sacrifices. There is no other option unless you got lucky and won the lottery.

To make as much money as we can in the modern world, we are now running faster than before. We compete with people around us and those on the other end of the continent in order to make our mark and advance in life.

How you can stop it

Consequently, in order to cease being broke, you must do the following:

Number 1: Never spend money that you can’t afford just to impress.

Today, everyone seems to strive just to impress. And in some regions of the world, it is even unacceptable to look less. Despite the fact that some people think beauty comes from the inside, others think it comes from the sports vehicle you drive or the Chanel (pronounced shanel) bag you are carrying.

To impress those who truly don’t matter, we waste our money in department shops and boutiques. Even history reminds us not to go overboard with our spending. When you can’t afford it, you should look for other affordable options. This is a crucial coping technique that enables you to save and keeps you out of debt. Getting rid of your desire to impress will prevent you from overspending.

Number 2: Freeze your credit cards in the freezer.

Nowadays, people carry many cards from various banks with various interests in their purses or wallets instead of carrying cash. You swipe your card at every purchase you make during the day, paying no attention to the bills you have collected in favor of the purchase you are currently making. According to a study, one of the main causes of financial ruin is excessive credit card spending.

 Freeze your credit cards in the freezer.

The only way you can escape from this is to run away and assume a different identity. Or you can also file for bankruptcy. But if you want to avoid both of these options, you can do so by going old school and carrying cash instead. This reduces your immediate purchasing power. Or you can also try freezing your credit card in ice in your freezer when the temptation to use it is too overwhelming. This adds even another obstacle between you and the following charge.

Number 3: Make wise investment decisions

An excellent approach to safeguard your possessions and earn money is through investments. Sadly, not all of us have a lot of investment knowledge. While some of us may be excellent money earners, not all of us possess the talent for sensible investing. Emotional investment is identical to gambling. We gamble rashly; as a result, we either win large or lose big.

To be safe, try to look for a financial advisor that has an understanding of the stock market or real estate. Most importantly, also conduct your own study. This will provide you with the assurance and knowledge you need to make wise financial decisions. Remember, your experience will be your best guide as you get used to investing.

Conclusion

To sum up, living paycheck to paycheck is not only limited to people with low incomes. Higher salaries will also be in the same situation especially if they have higher costs of living. Breaking the cycle of living paycheck to paycheck is essential for long-term financial stability. Although it isn’t always practicable, especially in hard circumstances, raising family income is a popular approach.

And getting the most out of one’s income can be done more quickly by paying off debt and cutting back on spending. And these are the reasons why Americans are living paycheck to paycheck. What are your thoughts on this? Let us know in the comment section below. We’d love to hear your thoughts regarding this topic.

Disclaimer: The views presented in this article are only for informative and educational reasons. The article is not meant to give expert advice or suggestions for a specific security or product.

Also Read:

10 Tips To Stop Spending Money On Things You Don’t Need

10 Tips to successfully buy a home and avoid home buying mistakes

10 Credit Cards Tips You’ve Never Heard Of

How Rising Interest Rates Affect Your Investment for Early Retirement

9 Golden rules of money and how to put them into action

Why is China’s stock market rising as the US market falls?

Stock Market for Beginners: Ultimate Investing Guide

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